“Start Quote

Mistakes could distort the housing market or carry threats to financial stability”

End QuoteTreasury Select Committee

The first phase of the Help to Buy scheme in England started in April, when buyers of newly built homes were eligible for a 20% equity loan from the government on top of their 5% deposit.

Similar schemes are operating in Scotland and Wales.

Under the second phase, buyers across the UK only need to provide a small deposit, with the government offering a guarantee of 15% of the loan to the lender - for a fee - to encourage the bank or building society to offer the loan.

That fee charged to the lender is expected to be up to 0.9% of the original loan level. This is a one-off fee dealt with entirely by the lender, which guarantees 15% of the mortgage for seven years.

Those who apply will face checks to make sure that they can afford the mortgage payments. The Council of Mortgage Lenders (CML), which represents lenders, said affordability checks would be as "rigorous" as they were with any borrower.

The scheme will be available for first-time buyers and home movers borrowing to buy new and old homes valued at no more than £600,000. It is expected to continue for three years.

It means a buyer looking to purchase a home costing £200,000 would have to put down a deposit of around £10,000. Demands have been much higher than this for many first-time buyers since the start of the financial crisis, usually about 20% of the value of a home.

Best buys?

Prime Minister David Cameron announced at the Conservative Party conference that the second phase of the scheme would be brought forward by three months from January.

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Dickie and Heidi Steel say they can save up more quickly for a 5% deposit

A number of lenders have expressed an interest in joining the second phase. Lloyds Banking Group and RBS are the most prominent. Other lenders have yet to commit.

Some products from the Halifax and Bank of Scotland will be available from Friday, with deals from other lenders expected to be in place by January.

Comparisons on the interest rates are difficult, as there are so few 95% mortgages on the market at present.

The most competitive, widely available two-year fixed rate mortgage before Help to Buy, for those offering a 5% deposit has an interest rate of 5.95%, according to financial information service Moneyfacts.

For those able to offer a 10% deposit, the cheapest mortgage deal was 3.54%, with a fee of £1,675, Moneyfacts said.

Price rises

An influential group of MPs has echoed concerns about the potential effect of the Help to Buy scheme. The Treasury Select Committee said that great care was needed from the government when setting up and running the scheme.

"Mistakes could distort the housing market or carry threats to financial stability," it said.

The first phase of Help to Buy was aimed at stimulating housebuilding

It said that - without care - the scheme could raise house prices, rather than stimulate the number of homes for sale.

"We continue to believe that the government of the day will face strong incentives to extend the scheme, with the attendant risk that the mortgage guarantee scheme becomes a permanent feature of the UK mortgage market," it said.

Last month, Chancellor George Osborne asked the Bank of England's Financial Policy Committee (FPC) to make annual reviews of the scheme, starting next September. The committee had been due to make an assessment only after its first three years of operation.

Treasury officials said that the FPC would advise on the fee that lenders have to pay, which could be changed each year, and whether to change the £600,000 limit.

Mr Osborne said that the housing market was recovering from low levels of activity and the latest extension of Help to Buy would help many more people get a foot on the ladder.

Mr Alexander said the Treasury Committee was right to say that Ministers should keep a close watch on Help to Buy. "We will make adjustments if they (the FPC) recommend them," he said.

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Shadow Treasury Minister Chris Leslie describes Help to Buy as a "lopsided approach"

He also rejected criticism that the government should be tackling a house supply shortage, rather than demand. "All the housebuilders tell us is that what is holding them back (building more houses) is a lack of demand," he said. "There are lots of other policies that this government is doing to tackle demand."

Chris Leslie, shadow chief secretary to the Treasury, questioned whether homes as expensive as £600,000 should be included in the scheme, and said that more affordable homes should be built.

"Unless George Osborne acts now to build more affordable homes, as we have urged, then soaring prices risk making it even harder for first-time buyers to get on the housing ladder. You can't tackle the cost of living crisis without building more homes," he said.

Comments

Comment number 217.

chrisk508th October 2013 - 15:01

If the big banks now believe that house prices are on the up, then why not allow 90 or 95% mortgages.

Truth is, they don't believe, they have manipulated prices by stifling property sales, they achieve that by not funding building companies, less houses more demand. It's a big con, if you will struggle with current interest rates you cannot afford to buy, soon rates will be 2 to 3% higher.

Comment number 216.

DeeeemarlesComment number 216 is an Editors' Pick8th October 2013 - 15:00

3 Big Problems 1) This will not help the real problem which is the high level of home prices. only increasing supply will address the issue + Reducing the number of BTL's. 2) Properties upto 600k is hardly helping those who need help. It should be capped at around £250k. 3)The taxpayer (including those on low wages) are subsidising the banks once again.

Comment number 215.

dg9999998th October 2013 - 15:00

This is such simple demand and supply economics that even Ed Balls could understand it. If you increase demand without increasing supply, prices will rise. Just a suggestion, but why not apply VAT to second homes or investment properties resulting in fewer BTL properties and more for first time buyers = increased supply to match increased demand!

Comment number 214.

Kano8th October 2013 - 14:54

So all those people whose rent is £500 (but could get a mortgage for £450) are doomed to stay in rent as saving £100 a month it would take 20 years to get a pitiful £24,000 deposit (excluding inflation).

That's the issue.

Reduce the deposit required and suddenly you have more home owners and less renters - something that is extremely good for the distribution of wealth.

Comment number 213.

Tc12348th October 2013 - 14:52

@208House prices will always increase over time. I'm sure you could buy a decent house in the 60s for £1000. Property inflation is a reality of growth, so you either want a continuous recession or a communist state? I'd personally prefer to see housing benefit abolished along with all other benefits and have people stand on their own two feet. Fat chance. Cue negative score

Comment number 212.

nicknack18th October 2013 - 14:47

Not all landlords are bad but there is significant proportion.

When i sold investment property for 2 years i saw the worst human trait, greed. Fleecing renters so they didn't have to work at all, 1 investor actually said "I've never worked a day in my life". Living on invested properties bought by daddies trust fund.

Comment number 211.

Kano8th October 2013 - 14:44

Erm, has anyone looked at the figures for this scheme? It actually costs a bit more to buy a house this way. Its great for people who haven't got much of deposit and are wasting their money in rent, for people with a decent deposit (which includes people with some equity already) its cheaper to find a decent mortgage rate.

Comment number 210.

milvusvestal8th October 2013 - 14:42

The government is playing a dangerous game with the property market. Lending to first-time buyers who are unable to muster a reasonable deposit is simply fuelling another personal debt crisis when, at some time hence, borrowing rates go through the roof.

If people can't afford a deposit, they must accept that they will have to wait in the queue until such time as they can.

Comment number 209.

Mike Hill8th October 2013 - 14:41

If you can't afford to make a proper deposit, then you can't afford to make the monthly payment. This is what happened in the States. People bought mortgages that they knew they could not afford, and most lost their homes. If your payment is more than 1/3 of your monthly income, you have no business trying to purchase a home.

Comment number 208.

CarpCarp8th October 2013 - 14:39

@202

Making retirement provision at the expense of others being able to buy somewhere thereby being able to reduce their housing costs to zero for their own retirement. All BTL is achieving is to massively drive up the housing benefit bill in 25+ years time.

Comment number 207.

Craig8th October 2013 - 14:34

"I know one way to afford a home. If house prices came tumbling down."

Thats a great idea... except if house prices were tumbling I suspect that banks may be reluctant to secure finance against them. So nobody would be able to afford a home... unless the government launched a scheme to absorb some of the risk.. oh hang on!

Comment number 203.

SB Yorkshire8th October 2013 - 14:35

We are a country of people who want a house of 'their'' own not a landlords, 5% deposit is achievable but I think the self employed still really really struggle, need low profits for tax need high profits for a reasonable lend. Credit profiling / worthiness is becoming a bit of a joke with mortgages, loans and car loans becoming impossible for some at reasonable rates.

Comment number 202.

Tc12348th October 2013 - 14:34

Buy to let owners get a very raw deal. Many let property in lieu of poor pensions as a fund for old age. If I wanted to let my property, I would have to top up the short fall in mortgage repayments, so its not fleecing the tenants, its subsidising them - but somehow the vitriolic left wingers want to make landlords as the evil enemy, when a good proportion are only making provision for retirement

Comment number 201.

jo8th October 2013 - 14:34

Suggestion to Alexander the assistant kid in charge of the sweet shop, you should be the one to get out more or hopefully the voters in his constituancy will have more sense in 2015. Talk about Britain heading for a bruising with these clowns in charge of the economy. The country cannot afford for them to be here much longer, come on Nicky- man up- give the country what it wants- an election

Comment number 200.

Hhh 8th October 2013 - 14:32

People forget, back before the 'crash' banks were lending 125% LTV. These were real sub prime mortgages and were bound to fail.

However RBS etc...are charging a high rate for this 95% luxury, not cheap - however this does not mean we are destined for another crash. Its all about affordability, if people can afford it whats the problem?

Comment number 198.

Stephen of Woking8th October 2013 - 14:30

All those clever people and nobody has the nouse to make the 2nd phase of the Help to Buy regionally specific. And all those smug people from the building and mortgage industry assuring us that there is no house price inflation...yet!

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